At the start of the UN International Year of Forests, Forest Footprint Disclosure urges more companies and investors to recognise the business risks of ignoring deforestation. Forest Footprint Disclosure (FFD) at the launch of their second Annual Review, calls on the private sector, the business and investment community, to play their part now to protect the world’s forests.
FFD was launched in June 2009 and focuses on international companies
that have direct exposure to forest risk commodities (FRCs), working with them
to disclose their supply chain policy to the investors endorsing the FFD
project. These FRCs have been shown to have links to deforestation pressures
and include timber, soy, cattle products, palm oil and biofuels.
Specifically FFD urges the business community to meet the following challenges:
British companies performed well. British Airways, Drax Group, Greenergy International, Marks and Spencer, J Sainsbury plc and Reed Elsevier all lead their sectors, demonstrating the leadership role that Britain plc continues to play in the corporate social responsibility agenda. Overseas participation also increased substantially. Clearly the companies that are responding outside the UK are ones that already take deforestation risk seriously but many more companies need to understand why they should address this issue. The Disclosure Request structure helps companies work through the issues and analysis needed to understand their forest footprint.
Last year, FFD approached 217 companies and achieved a 16% response rate (35 companies).This year the target list increased by 31% with the addition of primary producers in developing markets and buyers in the USA. In 2010, a total of 285 companies were approached and, despite the increase in reach, a 27% response rate was achieved (78 companies).
FFD called on more businesses to recognise the importance of changes in regulation and policy relating to protecting forested lands and the need for managements to assess their risk exposure in more detail.
1. Stoppage in Supply: With a rapid increase in national regulations relating to product acceptability, the challenge to a purchasing manager of delivering a continuous supply of forest-risk commodities is growing. If a company doesn’t know where its raw materials are coming from it cannot manage this risk effectively, leading to threat of supply stoppages or even prosecution.
2. Land Shortages: existing agricultural practices in cleared forest areas tend to have low productivity: more crops can only be produced by clearing more hectares. In order to stop this relentless land grab, better use must be made of land already cleared through investments in productivity. This may require additional investment, but without yield improvements the eventual result will be long term food price inflation as well as the destruction of important forest habitats and livelihoods.
3. Climate Change: The Stern Report commented that deforestation accounted for almost one-fifth of global greenhouse gas emissions: more than all forms of transport combined. It is impossible to conceive of a solution to climate change if deforestation is not reduced. Companies saving energy and carbon need to include their commodity sourcing policy if their climate change mitigation policy is to be credible and coherent.
4. Missing the Carbon Opportunity: The Cancun meeting encouraged the development of a market scheme for Reducing Emissions from Deforestation and Degradation (REDD+). This could generate commercial opportunities for companies who understand their forest impact. Work done now to understand these issues could pay dividends as this new market evolves. On the downside, REDD+ could change the arbitrage between land clearance and leaving forests standing – are companies currently aware which of their suppliers may be affected?
Investors endorsing forest footprint disclosure now represent over $5 trillion in assets under management and FFD seeks more supporters, especially in Asia and the Americas to drive their message home to local companies. FFD called on the investment community to promote the importance of identifying forest footprints in order to recognise and manage the business risk.
"Deforestation is a key risk for long term investors” said Freddie Woolfe, of Hermes Equity Ownership Services Limited, "Deforestation is responsible for around a fifth of global carbon emissions and for long-term investors such as pension funds, climate-related effects will structurally and systematically affect the markets in which we invest and therefore the underlying value of our portfolios.”
However, certain sectors continue to disappoint, with only one respondent from the oil and gas sector. Tracey Campbell, Director of FFD said, "In an age when millions of marketing dollars are spent on promoting renewable fuels to the consumer it is a great disappointment that the same companies won’t disclose how they manage the sustainability of their biofuel supply chains.’’
The Review highlights that companies need to act today as regulation to protect the world’s forest assets is increasing and they are at risk of being caught unprepared and losing value for their shareholders as a result.